Market Watch with Austin Schroeder and Alan Brugler
August 26, 2022
Hotter Than We Thought
The average world temperature for July was the sixth warmest since global records began in 1880, or a new record for combined land and sea temps according to some sources. For the 48 state CONUS, this was the 3rd warmest July on record according to NOAA. Europe had it’s sixth warmest July, and set new records for high temps. Asia has the third warmest July. The heat wasn’t everywhere, as Oceania (Australia et al) had the coolest July since 2012. It is of course winter in the Southern Hemisphere, but that didn’t stop Paraguay from seeing a new record high temp for July at 102.4 degrees (Concepcion). The commodity markets appear to have ‘discovered’ the global nature of the heat, or at least realized that there were crop production problems in the US, Europe and China arising from the July heat and related dryness. We saw the grains come charging back from the lows set in July.
Corn futures posted the highest close on Friday in nearly 2 months, as September was up 6.83% on the week. New crop December was 6.58& (41 cents) higher since last Friday. The Monday Crop Progress report from NASS showed 75% of the corn crop in the dough stage as of 8/21 and 31% dented, both 4% slower than the 5-year average pace. Crop conditions dropped 5 points on the Brugler500 index for the week (to 342), with gd/ex ratings down 1% to 55%. After four days of a Midwest Crop Tour, Pro Farmer pegged the US national corn yield at 168.1 bpa. Friday’s CFTC Commitment of Traders report revealed that managed money spec funds added 28,376 contracts to their net long position during the week that ended August 23. That put them net long 182,216 contracts as of Tuesday. That was their largest net long since June 28.
Wheat futures joined the grain rally this week, with all three exchanges showing active front months higher. KC HRW led the way, up 4.56%. Chicago SRW was 4.18% higher on the week. MPLS spring wheat saw a 2.26% gain from the previous week. Crop Progress data showed 95% of the winter wheat had been harvested by 8/21 now 2% behind normal, mainly in the PNW states. Spring wheat was still lagging this week with harvest 33% complete, 21% below normal pace. Condition ratings were unch at 64% gd/ex and down 1 on the Brugler500 index to 363. USDA’s FAS division worked for months to role out a new weekly Export Sales reporting system. The actual rollout on August 25 was a disaster, with numbers that were clearly wrong. The report was retracted, leaving us with no sales numbers for the week ending August 18 until further notice. Shipments can still be tracked by the separate Export Inspections report on Monday. CFTC Commitment of Traders data showed money managers in CBT wheat futures and options adding another 7,962 contracts to their net short position in the week ending 8/23. They were net short 26,069 contracts as of Tuesday. In KC wheat they added 1,905 contracts to their net long position, bumping it up to 9,425 contracts by Tuesday. That ended a 13-week streak of reductions in long exposure.
Soybeans rallied this week, more than taking out last week’s losses. September closed the week up 7.86%, posting contracts highs. New crop November was up 4.08% on the week, a 57 ¼ cent gain. Product values joined the party, with meal 6.55% higher and soy oil up 4.30% for the week. On Monday, NASS reported 84% of the soybean crop was setting pods as of 8/21, now 2% point behind the average. The Brugler500 index was down another 3 points from last week at 350 as 1% of the crop dropped out of the gd/ex category, now at 57%. Following the Pro Farmer Crop Tour, Pro Farmer pegged the US bean crop yield at 51.7 bpa, with production at 4.535 billion bushels. The weekly CFTC update had spec funds 104,471contracts net long in soybeans as of August 23. That was up 5,135 contracts from the previous week.
Live cattle backed off this week, as October was down $2.20. August was held up by cash, down just 80 cents. Cash cattle trade was firm this week, with $145-148 seen in the north and $142 in the south. Feeders backed off on pressure from the higher corn and weaker fats, as September was down $2.55. The CME Feeder Cattle Index was up $2.39 from last week to $182.25. Wholesale beef prices were mixed again this week, with the Choice/Select spread shrinking to $24.00. Choice was down $1.52 (-0.6%) through the week. Select boxes were $0.82 per hundred (+0.3%) higher. Weekly beef production was up 2.9% from the previous week and 3.1% larger than the same week in 2021. Beef production YTD is up 1.0% on 1.2% larger slaughter. Friday’s Commitment of Traders showed spec funds adding another 520 contracts to their cattle net long in the week ending 8/23 to 66,556 contracts.
Lean hog futures continued the weakness into this week, as nearby October was down 2.66%. The CME Lean Hog index was $116.05 as of August 24, down $4.55 from last week. The pork carcass cutout value was down $14.92 (-12.7%) this week. Bellies again led the way lower, down 18.1% for the week. All six primals were lower. USDA’s Cold Storage report on August 22 showed pork in cold storage down 1.6% from June, but up 20% year over year. Belly stocks were 53% larger than year ago, although about where they were two years ago. US weekly pork production was down 0.3% from the previous week and 0.7% below the same week in 2021. YTD production is down 2.8% on 3.5% fewer hogs. The weekly Commitment of Traders report indicated spec funds adding reversing course, cutting net longs by 7,150 contracts in the week ending August 23. That took them to net long 64,807 contracts by Tuesday.
After last week’s strength, cotton futures were up another 1.44% this week on strong Friday action. Monday’s NASS Crop Progress report showed 88% of cotton was setting bolls as of 8/21 and 19% had bolls open, both 3% and 1% ahead of their respective averages. Condition ratings headed back lower, as 3% came back out of the gd/ex categories to 31%. The Brugler500 index was back down 10 points to 278 points. USDA’s AWP for cotton was up 2.58 cents on Thursday, to 104.48 cents/lb. Friday’s weekly Commitment of Traders report showed spec funds adding 6,016 contracts to their net long in cotton by August 23. That left them 50,778 contracts net long by Tuesday.
Market Watch
Grain traders will begin Monday reacting to any surprise futures positions inherited at September options expiration on Friday. Sunday night action will also reflect crop tour yield projections released on Friday afternoon. The Monday morning Export Inspections report should be “per usual” and the Crop Progress data will be updated that afternoon. Skip ahead to Wednesday and EIA will release ethanol numbers for stocks and production. Wednesday is also the first notice day for September grain futures and the last trading day for August live cattle futures. Flip the calendar to September on Thursday and FAS is scheduled to release the weekly Export Sales. We also receive the monthly Fats & Oils, Grain Crushing, and Cotton Systems report from NASS that afternoon. Friday is the last day for serial September live cattle options.
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There is a risk of loss in futures and options trading. Similar risks exist for cash commodity producers. Past performance is not necessarily indicative of future results.
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